The Labour Party won the UK General Election by a landslide. But what does a new government mean for your personal finances?
We won’t get the full picture until the first Budget announcement. But based on recent statements from Prime Minister Keir Starmer and the Labour Party, we can get a glimpse of what’s to come. Learn how these changes could impact your savings, taxes, pensions, and more.
What the new Labour government means for your savings
Individual Savings Accounts (ISA)
In the Spring Budget, then-Chancellor Jeremy Hunt announced a new British ISA. This would give savers another tax-free £5,000 on top of the £20,000 allowed in the current cash ISA. But since winning the election, Labour hasn’t mentioned the British ISA.
The road ahead remains unclear, but there are a handful of scenarios that could impact savers:
- Increased contribution limits: If Labour raises the £20,000 annual ISA limit, it could benefit you by allowing you to invest more tax-free.
- Simplification of ISAs: Labour could merge Cash ISAs, Stocks and Shares ISAs, Junior ISAs, and Innovative Finance ISAs into a single ISA product. This would simplify the ISA landscape, making it easier to manage savings and transition to long-term investments.
- Caps on tax-free amounts: Labour might review how tax applies to people with large ISA pots, potentially capping the amount that can remain tax-free. This could affect those with substantial ISA savings by limiting their tax-free benefits.
If you’re thinking about opening an ISA or increasing your contributions, now could be an opportune time to lock in an account with favourable rates before any changes happen.
Interest rates on savings accounts
The Bank of England (BoE) aims to keep inflation at 2%. New Labour policies affecting inflation, such as changes in tax or public sector wages, could influence the BoE's decisions on base rate changes to maintain their target.
Experts predict that the BoE base rate will fall later this year. This means that interest rates on savings accounts are likely to drop too. Now’s the time to take advantage of this savings sweet spot before the new government implements any changes.
If your cash is currently sitting in an account earning little to no interest, there are many accounts offering rates above inflation.
By spreading your cash across different savings accounts and banks, you’ll benefit from better returns and have peace of mind knowing your eligible deposits will be covered by FSCS protection.
This approach means your wealth remains secure and continues to grow steadily, even in fluctuating economic conditions.
View our partner banks and interest rates.
Changes to the tax landscape
Labour has said it won't raise taxes for working people, regardless of their income bracket. This includes Income Tax, National Insurance, and VAT. But with a fiscal plan to increase tax revenue by over £8.5 billion a year, where will the extra tax come from, and who’s likely to pay more?
The new Labour government has said they’ll raise funds by:
- closing the loopholes that allow wealthy non-domiciled people to avoid paying tax
- introducing a windfall tax on the profits of the largest energy firms
- addressing tax evasion, which is reported to be worth around £6bn annually
Income Tax
Labour has promised not to raise Income Tax rates. But it will keep Income Tax thresholds frozen until April 2028. This policy will result in more people paying higher taxes. As incomes rise, a larger portion will be subject to taxation, with more income falling into higher tax bands.
Capital Gains Tax
Capital Gains Tax (CGT) is a tax on the profit made from selling assets such as stocks, property, or valuable personal items. While Labour's manifesto didn’t specify any changes to CGT, it’s been predicted that there could be potential revisions under the new Labour government. Starmer’s refusal to rule out raising CGT has fuelled speculation about possible increases.
The new Chancellor Rachel Reeves said that the Treasury's situation is worse than expected. Although she’s stated that there are currently 'no plans' to increase CGT, this doesn’t constitute a firm commitment.
If you’re weighing up whether to sell any investments or assets, consider talking to a Financial Adviser to understand the impact of potential changes.
Learn more: How to choose the right Financial Adviser.
Inheritance Tax
Labour hasn’t mentioned changes to Inheritance Tax (IHT). But they have promised to stop ‘the use of offshore trusts to avoid inheritance tax.’ IHT is another area where significant reforms are widely speculated. Reports suggest that the government may cut or scrap Business Relief on IHT, which is reportedly worth £1.4 billion per year, making this a key area to watch.
What Labour’s policies mean for your pension
The triple-lock
Labour has promised to keep the triple-lock on State Pensions. This ensures the State Pension rises each year by average wage growth, inflation, or 2.5% – whichever is highest. This means pensioners will see their benefits rise in line with inflation or wage growth, helping to maintain their purchasing power amidst economic changes.
But there’s ongoing debate about whether this system is affordable in the long run. While the system intends to provide financial security and prevent your pension from losing value, there are concerns that it might put a strain on public finances in the future. For example, if wage growth continues at its current rate, the State Pension could rise to over £12,150 in the 2025-26 tax year, potentially increasing the financial burden on public resources.
Pensions Lifetime Allowance
Before the election, Reeves said that a Labour government would reintroduce the Pensions Lifetime Allowance. But this unpopular plan was soon reversed and removed from the Labour manifesto. As a result, people with larger pension pots can breathe a sigh of relief, knowing they won’t face the limitations that the Lifetime Allowance would have imposed.
In yet more good news, the current 25% tax-free lump sum also remains intact. This means you can continue to withdraw a quarter of your pension savings, tax-free.
Pensions review
Following the announcement of a Pension Schemes Bill in the Kings’s Speech, Reeves outlined plans for a landmark review. Labour’s pension policy aims to automatically consolidate small pension pots and tackle inefficiencies in the pensions system. It’s projected to boost peoples pensions by an additional £11,000 by the time they retire.
If you have multiple pension pots scattered across different schemes, this policy could simplify your retirement planning by merging them into one. With £26.6 billion in lost and unclaimed UK pension pots, and an average value of £9,500 per lost pension, this consolidation should reduce admin costs and increase your overall pension savings.
Labour’s approach aims to make managing your pension easier and more efficient, ensuring that more of your savings go toward your retirement instead of getting lost in small, separate accounts.
Learn more: A guide to tax in retirement.
Impact on private school fees
Labour plans to introduce VAT on private school fees and to remove business rate relief for these schools. Business rate relief is a discount on the property taxes that private schools currently receive, which helps reduce their overall costs. By removing this relief, private schools will face higher expenses.
If private schools choose to pass these new costs onto parents, fees could increase by 15-20%. These changes could start as early as January 2025.
What happens next?
The full impact of the new government’s policies will become clearer following the first Budget announcement on Wednesday 30 October. This will provide detailed insights into Labour's financial plans and their implications for savers and the economy.
In the meantime, stay informed through reliable sources like HM Treasury, reputable news sites, and financial experts. Consider how potential changes could impact you and use this time to review and adjust your financial strategy.
Labour’s election win could lead to significant shifts in the UK’s financial landscape, so being proactive and informed will help you manage these changes effectively and safeguard your finances.
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